10 Tips for Spring Cleaning Your Finances

Spring Cleaning Your Finances

By Marilyn Lewis

Spring, with new life popping up everywhere, is the source of many an impulse to start afresh. The spring cleaning tradition reaches back a long way, as Country Magazine's readers' tales of spring cleaning with their families attest. Apply the tradition to the mess of files and financial records -- paper and virtual -- that have piled up in your life. Here's how to get going:

1. Set Goals

A project like spring cleaning can eat you alive, unless you set some limits. Decide what you want to accomplish. You can always return to the job next week or next year, so make it manageable. Some ideas:
  • Clear out two years' worth of old tax documents.
  • Sort through one or two boxes of old papers or file cabinet drawers.
  • Clean out the closet that's stuffed with old papers.
2. Know How Long to Keep Paperwork

Don't get carried away and toss absolutely everything. To help substantiate an insurance claim should you ever need to make one, ask your home-, rental- or auto-insurance companies or agents which documents you should keep and how long to hold them.

Keep copies of your tax returns forever. "They help in preparing future tax returns and making computations if you file an amended return," the IRS says. Also, old tax returns offer proof, should you ever need it, that you filed taxes in those years. The IRS recommends that you keep supporting documents for as long as you can be audited or held responsible for the filings. Here are a few rules of thumb:
  • The IRS says it generally audits taxes back three years, so keep records supporting deductions at least three years after a return was due or filed. However, the IRS also says, "Generally, if a substantial error is identified, the IRS will not go back more than the last six years." So you may want to hold onto records for six years to be sure you're covered.
  • Keep payroll tax records six years.
  • If you filed a fraudulent tax return, you're on the hook forever, so hold onto supporting documents.
  • If you failed to report income worth more than 25 percent of the gross amount you reported, you're liable to the IRS for six years.
3. Discard Papers If You Have Electronic Copies

Before tossing documents, check with banks and financial services companies, including your 401(k) provider, to learn how long they retain electronic copies of your records. Download electronic copies of bank and insurance records and other important documents to your computer and back them up onto a separate hard drive or cloud storage. It's smart to have backups for your backups. Use a second hard drive or buy a subscription to an always-on backup service that constantly copies your entire computer's contents to a secure cloud storage for a minimal fee.

The Wirecutter's review of backup plans recommends Crashplan first and Backblaze second. "Both allow for unlimited storage of one or more computers for roughly $4-5 a month, depending upon how far in advance you pay," the article says. For more on backups and paring back files on your personal devices, read 5 Steps to Spring Clean Your Tech.

4. Decide What to Shred

Toss instruction manuals for things you no longer own, utility bills, receipts, reconciled bank statements, canceled checks, old newspapers and correspondence unless it's really precious. After refinancing your mortgage you can get rid of most of the paperwork. Keep the entire set of documents from your last refinance. Otherwise, "you only need to keep the closing summary that documents your costs and the paid-in-full letter from the old mortgage," says Consumer Reports

5. Buy a Scanner and Use It Daily

Get into the practice of scanning and then shredding documents you want to retain. Organize your computer files so you can easily drop them into the right folders. The Wirecutter recently tested and reviewed portable document scanners.

6. Shred, Shred and Shred

Don't risk identity theft by throwing personal documents into the trash. If you don't have a shredder, or if yours isn't powerful, safe or easy to use, buy a crosscut (for best security) shredder. Read Good Housekeeping's reviews of 25 shredders.

Or, if your shredding is fairly lightweight (a few things a month), take The Wirecutter's advice -- the site tests products before recommending -- and buy the $50 AmazonBasics 12-Sheet Cross-Cut Paper/CD/Credit Card Shredder. For harder duty, The Wirecutter prefers Fellowes 100% Jam Proof Shredder, 73Ci 12-Sheet Cross-Cut, which sells for around $150.

Few people are willing to shred years' worth of documents at home. But if you are one of them, give your shredder frequent rests to prevent overheating and oil the cutting mechanism often or use shredder lubrication sheets. Read the manufacturer's instructions before testing your shredder's limits.

If you've got lots to shred, find a service you trust. Call first to learn if you can watch (for your own security) as the shredding is done and whether you can take the shredded paper home if you wish.
Angie's List reviews the options:
  • Records management warehouse companies. You bring documents to their facility.
  • Mobile shredding services. They come to your home with a truck and shred on site. (Maybe best for watching the work being done).
  • Retail office supply stores, such as FedEx and UPS. You bring documents to the store (not drop-off depots) for shredding.
  • Office supply box stores, such as Office Max, Staples and Office Depot.
7. Make an Insurance Inventory

Renters and homeowners alike benefit from creating an inventory of possessions. The Insurance Information Institute has a free mobile app and desk software for this purpose, and this institute article tells how to conduct an inventory. Ask your insurer for tips. Some companies recommend their own software. Technology makes the job fairly simple:
  • Use your smart phone (or borrow your friend's or your kid's) to photograph every possession in your home for which you'd want to make an insurance claim if it was stolen or damaged. Even simpler, take a video, walking through the home as you point out items and describe their value.
  • Document room by room. Include the home itself, inside and out, vehicles, car accessories and interior furnishings, sports equipment, outdoor furniture, toys and structures.
  • Record the rough amount you paid for each item and, if possible, when you purchased it. Write it on the back of each photo or connect the information with the photos on your computer.
  • Starting now, photograph new possessions as you obtain them. Save their receipts with your inventory.
8. Scrutinize Your Bank Accounts

Take a yearly look at your bank accounts. If you have too many, close the inactive ones. Shred unused checks and registers from old accounts.

9. Shop for New Bank Accounts

There's no excuse for paying fees when you can find free checking. Read Bank Fees are Rising - Here's How to Escape Them.

10. Make a New Habit

Here's a simple daily routine that prevents mail from piling up. You'll need:
  • A letter opener or serrated butter knife (try Goodwill if you don't have one).
  • A basket for paper recycling.
  • A shredder.
  • A box or bag near your shredder for papers to be shredded.
When you've picked up your mail from the mailbox, go directly to a table or counter and slice open each envelope, separating the material into three piles:
  • Bills and documents you want to use or keep (to pay, act on or store).
  • Papers to discard that contain your name, address, account number or any identifying information (to shred).
  • Papers with no identifying information (to recycle).
Toss the recyclables into their basket, shred paid bills and papers with identifying information or put them next to the shredder, and act on the items in the remaining pile.

Do you have a spring cleaning ritual you can recommend for more security and less clutter? Share it in comments below or on our Facebook page. Like this article? Sign up for our newsletter and we'll send you a regular digest of our newest stories, full of money saving tips and advice, free! We'll also email you a PDF of Stacy Johnson's "205 Ways to Save Money" as soon as you've subscribed. It's full of great tips that'll help you save a ton of extra cash.
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